Happy Days Are Here Again?

Don't Kid Yourself

January 25, 1999|By John McCarron.

Thank goodness the Social Security crisis is over.

Just when things were starting to look bad, just when I was about to tell my kids they'll have to work two jobs so mom and I can keep cashing our checks, up steps William Jefferson "Flexi-Bill" Clinton with the welcome news.

It was enough to make any right-thinking citizen--even somebody like televangelist Pat Robertson--forget about Monica What's-her-name.

It seems that before delivering his State of the Union address last week, the president consulted with his Office of Management and Budget. It turns out there will be plenty of money to go around after all. What a relief. Over the next 15 years, the White House predicts, the government will collect $4.4 trillion more in taxes than it will need for existing programs, including Social Security. That's trillion with a "t," or almost as much as the entire current national debt.

Clinton wants to plow more than half of this bonanza, some $2.7 trillion, into the Social Security trust fund. And a quarter of that deposit will be invested not in boring old Treasury bonds, but in our go-go stock market--perhaps through broad-based index funds. This should earn enough to keep Social Security solvent until the year 2055, by which time most of us boomers will be dead and gone. Crisis averted.

And that's not all, folks. No, that's not all.

So large will be these future budget surpluses that there will be $700 billion left over to shore up Medicare. The big health insurance plan for seniors is about to go into the red (some say trillions in the red) despite the big squeeze the government is putting on doctors, hospitals and HMOs. Only now, if we play our cards right, Clinton says, we'll even be able to let early retirees "buy in" to the program and, for the first time, cover prescription drugs. Pass the Viagra.

Then Clinton let fly with the really good news.

Even after saving Social Security and Medicare, there will be enough surplus left to help folks set up a new kind of "USA" tax-advantaged retirement account to which the government will make matching deposits like private employers now do to their workers' 401(k) plans.

And even after doing that, there will be a half trillion or so left to fund new defense and domestic programs, as needed, and to repeal unpopular rules like the one that cuts back Social Security payments to oldsters who keep working.

I know, it all sounds too good to be true.

That's because it is too good to be true.

The White House has been coy about the economic assumptions underlying its prediction of a $4.4 trillion, 15-year budget surplus. But my strong suspicion is that the boys at OMB cooked the books, or at least sauteed them a little, by assuming the U.S. economy and Wall Street's financial markets will continue the bender they've been on since 1991. They will not, of course. This has been a great ride, but the economic cycle--the periodic oscillation between recession and expansion--has not been repealed.

Things look rosy now because unemployment is below 5 percent and record numbers of workers are contributing to Social Security and Medicare. Things look rosy now because the stock market is nearing the end of the greatest bull run of all time, prompting investors to take profits and pay billions in capital gains taxes. The blue-chip Dow Jones Industrial Average is approaching 10,000 and booming technology stocks have set the Nasdaq exchange on fire. Will this go on forever? Is Amazon.com really worth more than Sears, Roebuck and Co.? I don't think so. At least not until the red-hot Internet retailer earns its first dollar.

No, my fellow Americans, the stock market is not going to save Social Security. Not if the government invests the money; not if the government lets you invest the money. The hard fact is that well before the year 2030, when there will be only 2.2 taxpaying workers for every boomer retiree, something will have to give. Take your pick: higher payroll taxes, lower benefits, older eligibility or some combination of the above.

As for Medicare, the situation is worse. If nothing is done, system administrators predict the Part A (hospitalization) trust fund will slip into insolvency next year and free-fall to an unthinkable $12 trillion deficit by 2030. Tripling the Medicare payroll tax wouldn't be enough to keep up . . . even if our kids would stand for it, which they won't. So get ready for higher deductibles, higher co-pays and, if you're in an HMO, rationing by another name. Forget that State-of-the-Union pharmaceutical benefit.

Don't get me wrong. Eight glorious years of economic expansion with low inflation and a rip-roaring run on Wall Street will help us solve the problems ahead. It is better to begin the task with this year's $70 billion surplus than with the $200 billion deficit we were running just a few years ago.

We cannot, however, expect straight-line economic growth and parabolic stock appreciation to do the work for us. It's simply not going to happen. In truth, there is no budget surplus. Not really. Not until we figure out, honestly, how to meet future obligations without crucifying our children.

So the next time President Clinton says he wants to match the savings in your USA account, or when Republicans say they want to cut your income taxes by 10 percent, just say "No thanks."

It will be all we can do to cash any retirement check and keep the kids from hating us.